Special Report: Appetite for travel among investors still high despite Brexit

Ahead of Travel Weekly’ mergers and acquisitions Business Breakfast this week, Ian Taylor spoke to Chris Watt of ECI Partners which last month sold Reed & Mackay to fellow PE firm Inflexion.

The UK vote to leave the EU may slow the mergers and acquisitions (M&A) market in travel, but there is no loss of appetite for travel businesses among investors.

That is the view of Chris Watt, of private equity (PE) firm ECI Partners, which last month sold its controlling stake in corporate travel management company Reed & Mackay to fellow PE firm Inflexion for an undisclosed sum put at 3.4 times its investment in 2011.

Now ECI is looking for fresh investments in the sector, with Watt saying: “Travel has been great for us and we’re keen to do more.”

Of Reed & Mackay, he said: “The business had performed strongly and begun to embark on a more international strategy. It was the right time for a new investor.

“We’ve done about eight travel deals and they have all been successful. Only one has been corporate [travel], but we’ll certainly look at other opportunities. There are attractions to business travel, working with regular clients, but most of our investments have been in leisure.”

ECI retains an investment in Great Rail Journeys, based in York. Previous investments include CarTrawler, Hoseasons, LateRooms and Holiday Autos.

PE-backed deals in August saw Cruise.co.uk and ITC Travel change hands as well as Reed & Mackay. Yet Watt does not foresee a flurry of post-referendum activity.

He said: “Businesses in the process of M&A activity have continued with the process – Reed & Mackay is an example. But if you were contemplating bringing a business to market in the second half of this year you would probably make a deferral until next year.

“We see a slowing down in deal volumes generally. The nature and timing of Brexit remain unclear.”

However, he added: “In terms of business performance, it is a little early to tell. There was a softening in transaction volumes in the days after the vote, but it quickly returned to normal.

“Now it’s about the impact when people get back from their holidays after the pound didn’t go as far as before. The latest consumer retail spending data was encouraging. There are reasons not to be gloomy.”

Travel remains attractive to investors, but “is not for the faint hearted”, he said. “It’s susceptible to one-off events and you have to find the right business to weather the odd storm. A business needs an investor who understands there will be bumps along the road.

“Over a three-to-five-year investment a travel business is likely to have one or two years when it is impacted by events. But the underlying consumer appetite for travel is strong.

“Holidays have become embedded in household expenditure. It’s not a question of whether you can afford a main holiday these days. It’s a pretty resilient area of spending.”That resilience is a major attraction, but there are others. Watt said: “The more traditional businesses we look at are high margin and highly cash-generative.

The margins are lower at tech-enabled agency businesses – they are more about volume. But there are attractions to the financial characteristics of travel businesses, with consumers paying upfront in advance.

“We’ve an appetite to help more businesses in travel.”

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